Business Strategy of Virgin Group Companies - Coursework Example

Business strategy Table of Contents Task 3 Task 2 5 Reference List 7 Task Virgin Group is seen to follow the unrelated diversification option. The company since its inception has been diversifying its products across a wide range of industries which includes airlines, travel, music, telecommunication services, mobile phones, retail, media, railway and banking. The companies of Virgin Group are a mix of public and privately owned enterprises. The commercial set up of the companies are complex and varied. The businesses acquired by the Virgin Group or the developed separately are not merged together. They are held as separate entities. Virgin’s CEO Richard Branson considers that Virgin adds value to from three important perspectives, namely; brand image, public relations and marketing skills. Branson states that many existing companies are not able to deliver high value to customers due to the fact that overtime most companies become inefficient, complacent and much too occupied with their rivals. Virgin tries to overcome the issues of inefficiency and industry saturation by diversifying itself. Due to such diversification it becomes possible for the firm to spread risks across different domains of the economy and not remain dependent upon a single sector. Virgin follows different corporate strategies in respect of acquisitions. Some of the firms of the group are large corporate entities while others are just at their start up stage. However Virgin has proved itself as a successful player in most of the competitive industries. The strong financial resources of the company have played an important role in its growth and diversification. However it is important to note here that not all companies of the Virgin Group were successful. Some like Virgin Media and Virgin Rail have failed to meet customer standards. These events have however have not tarnished the image of Branson who is viewed upon as an entrepreneur who broke the monopolistic rule of many British companies such as the British Airways. It is difficult to assess the net financial competency of Virgin due to its vastness and the absence of consolidated statements. Journalist Tom Bower had stated that Virgin Airlines had incurred losses of almost 3.9 million pounds when other airlines companies were running in profits. However Branson stated Virgin does not seek to earn profits solely. He expects growth and long term existence. Branson is expected to soon leave the company. Administrators are worried regarding whether the company can survive without Branson. Also the crisis faced by the group in its aviation sector is also raises immense concerns. Virgin is seen to follow the unrelated or heterogeneous diversification strategy since the beginning. Although this type of diversification has helped the company to function in a wide range of industries, it has prevented the firm from gaining excellence in any particular domain. Virgin’s main businesses from which the company earns maximum revenues at present are Virgin Airways, Media and Telecommunications. Due to diversification, the growth of individual sectors was hampered. As a result some of the important holding companies began earning losses. One of the feasible options available for the Virgin group is to diversify its existing companies in the horizontal or vertical manner. In Horizontal diversification more products or offerings are added to the existing products (Teece, 2010). For instance Virgin airways can be horizontally diversified by including more number of aircraft carriers and including more services and advantages for the passengers. The company can also be diversified by acquiring other similar airlines firms and thereby increase the net assets of the company. Horizontal diversification in the existing companies of the Virgin Group would facilitate improving their operational efficiency and gain greater market strength. Virgin Group requires concentrating upon strengthening its firms instead of simply venturing into new sectors (Peng, Wang and Jiang, 2008). Once the existing companies have been strongly established, the company may further diversify into new sectors. Strengthening of the existing firms can also be done through vertical diversification whereby a company is required to move up or down the supply network (Peng, 2002). Virgin Telecommunications and Virgin Mobile are primarily engaged in providing mobile network and data connectivity facilities. The company can be vertically diversified by including manufacturing of greater number of mobile phones. At present Virgin Mobiles are manufacturing certain mobile phones, but there service quality and popularity are not up to the market standards. This is one of the primary reasons behind the lack of success of the company in the telecommunications sector. Very recently the Virgin group had ventured into the banking sector, however much success was not achieved due to lack of specialization and focus on growth. The banking activities of the Virgin Group can further be improved by providing more number of financial services. The growth of the banking operation may also facilitate providing financial assistance to other firms of the Virgin Group. Hence it can therefore be stated that Virgin Group requires at concentrating upon the development of their existing business ventures by putting a halt to expanding into other industries. The slow growth and the lack of revenue earning capacities of Virgin Airways require special attention of the administrators of the company. Horizontal diversification is considered to be one of the effective options available for Virgin to improve the operations of their existing firms and prevent them from failing. The horizontal strategies primarily include product diversification, service diversification, technological improvements and intensive market communication. Marketing and promotional activities must also not be ignored while undertaking such activities. Mere diversification across industries will not help the organization to sustain for sustaining in the long run. In order to obtain productivity and improved performance, individual firms require to be well established. Therefore by adopting the horizontal or the vertical diversification strategies, the companies under the Virgin group must focus upon establishing themselves as stronger brands in the market (Pearce and Robinson, 2000). Depending on the nature of products and market opportunities, administrators must strategically determine the type of diversification that requires being implemented. Virgin has a good image and a strong bond with consumers. However the products of the brand have many at times failed to meet the expectations of the customers. Therefore strategic decisions must be taken in respect of improving the products of the brand across diverse industries. Task 2 The safe framework consists of three important elements namely suitability, acceptability and feasibility. The safe framework can be utilized by mangers while taking important strategic decisions. Mangers assess each criteria of the safe framework against the strategic decision and policies pursued (Stacey, 2007). Suitability mainly refers to the aspect of analyzing whether a particular strategy suits the needs of the firms. Every action implemented in the organization must be in alignment with the mission and vision of the organization. The decisions taken by the management must also be suitable in respect of the long term and short term goals. Diversification decisions taken by the management must lead to the long term success and growth. The immediate implications of diversification can be analyzed on the basis profits earned against costs incurred. Considering the needs of Virgin Group, both horizontal and vertical diversifications would help the different holding companies of the group to grow and establish themselves in their respective industries more effectively (Freeman, 2010). The acceptability criteria measures strategic decisions against the interest and requirements of different stakeholders of an organization. The important stakeholders of an organization are shareholders, employees, workers, suppliers, investors, government and the general public. An organization is required to crucially analyze the needs of each stakeholder group and take decisions accordingly (Hill and Jones, 2007). Meeting the needs of stakeholders is an important aspect every business is required to fulfil. Therefore before taking diversification decisions the administrators of Virgin Group must consider the interests of stakeholders and ensure their wellbeing. Strategic decisions are acceptable to stakeholders when there is adequate amount of return on investment. The returns are required to be higher than the initials investments made. Shareholders, investors and employees are seen to gauge the acceptability of important decisions on the basis of profits earned. On the other hand consumers and government authorities emphasize upon the quality of products and services as outcomes of strategic decisions in order to provide their acceptability. It is also checked whether the undertaken decisions have any considerable impact upon the external environment. The decisions taken regarding business activities are required to meet all needs of the environment protection act. The project must also take full utilization of the resources of the organization (Thompson, 2001). The feasibility of a strategic decision is analyzed by conducting market analysis, site analysis, competitor analysis and financial feasibility analysis (Hitt, Ireland and Hoskisson, 2012). Organizational decisions and strategic moves must result in meeting the needs of a particular market. If the market location is far from the site where the products are manufactured, then it becomes important for the managers to estimate the amount of time required for transportation. Unfavourable topographical conditions may cause difficulties in bringing goods and raw materials to the desired location. It is also important to analyze the amount of competition existing for a particular commodity in the market. If the market is saturated with stiff competitors then attaining profits becomes difficult. Feasibility of a project also incorporates assessing labour and technology requirements. The timescale required for the completion of a project is also an important aspect to consider. It is therefore essential for Virgin Group to test the feasibility of the decisions taken before implementing the same (Priem and Butler, 2001). Reference List Freeman, R. E., 2010. Strategic management: A stakeholder approach. Cambridge: Cambridge University Press. Hill, C. and Jones, G., 2007. Strategic management: An integrated approach. Connecticut: Cengage Learning. Hitt, M., Ireland, R. D. and Hoskisson, R., 2012. Strategic management cases: competitiveness and globalization. Connecticut: Cengage Learning. Pearce, J. A. and Robinson, R. B., 2000. Strategic management: Formulation, implementation, and control. New York: Irwin/McGraw-Hill. Peng, M. W., 2002. Towards an institution-based view of business strategy. Asia Pacific Journal of Management, 19(2-3), pp. 251-267. Peng, M. W., Wang, D. Y. and Jiang, Y., 2008. An institution-based view of international business strategy: A focus on emerging economies. Journal of International Business Studies, 39(5), pp. 920-936. Priem, R. L. and Butler, J. E., 2001. Is the resource-based “view” a useful perspective for strategic management research? Academy of management review, 26(1), pp. 22-40. Stacey, R. D., 2007. Strategic management and organisational dynamics: The challenge of complexity to ways of thinking about organisations. New Jersey: Pearson Education. Teece, D. J., 2010. Business models, business strategy and innovation. Long range planning, 43(2), pp. 172-194. Thompson, J. L., 2001. Strategic management. Connecticut: Thompson Learning. Read More